The Week That Was in ASEAN@Smartkarma - Thai Strategy, Astra, Telkom, and Central Retail IPO

Indonesia Political Risk Analyst

Kevin O’Rourke

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

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<div>Factors affecting Indonesia's outlook -- such as trade, interest rates and domestic political uncertainties -- are improving or resolving.  The glaring exception is governance reform.  If Widodo fails to keep illiberal ministers in check, worsening corruption and setbacks to democratization could squander a prime opportunity at the outset of his second term.  Widodo's depiction of an investment agreement with the UAE involved considerable hype.  The government is restructuring subsidies for cooking fuel to save budget resources.  </div>Outlook: One by one, conditions affecting Indonesia’s outlook are improving.  The trade war détente, currency strength and declining interest rates bode well for the economy, while political uncertainties are diminishing.  Investor confidence may now hinge on whether imminent union protests derail labor reform – and whether Widodo indulges mafia‑style interests who would jeopardize the ‘democracy premium’ (p. 12).Politics: Golkar Chair Airlangga Hartarto unveiled a party leadership roster that accommodates disparate interests – and dilutes the influence of Bambang Soesatyo.  Seen as a nascent threat to the democratic status quo two months ago, the People’s Consultative Assembly (MPR) speaker is substantially weaker now (Page 2).  In upcoming regional‑head contests, bids by four relatives of President Joko Widodo warrant concern about dynastic ambitions that may conflict with democratic principles.  So far, however, Widodo’s offspring remain less ambitious than those of his predecessor (p. 5).  The party‑chair election in the National Mandate Party (Pan) is due on 12 February, but the incumbent contender Zulkifli Hasan faces questioning by the Anti‑Corruption Commission (KPK); the case dates from his Yudhoyono‑era tenure as forestry minister (p. 6). Policy News: The government intends to trim spending on cooking‑fuel subsidies by targeting the spending.  Households not qualified as beneficiaries may need to spend an additional Rp30,000 per month for liquid petroleum gas (LPG) canisters (p. 8). Infrastructure: The president intimated that the UAE will fund a US$28 billion Indonesia Sovereign Wealth Fund (SWF).  The reality may not be so grand (p. 9).Economics: The US‑China ‘Phase One deal’ at least offers a respite from tariff­‑related uncertainties.  The potential boost for commodity prices may be driving up the rupiah at present.  Ample scope now exists for further interest rate cuts by Bank Indonesia (BI) in 2020. Nonetheless, growth requires investment in labor‑intensive manufacturing, which in turn requires reforms (p. 10).

Factors affecting Indonesia's outlook -- such as trade, interest rates and domestic political uncertainties -- are improving or resolving.  The glaring exception is governance reform.  If Widodo fails to keep illiberal ministers in check, worsening corruption and setbacks to democratization could squander a prime opportunity at the outset of his second term.  Widodo's depiction of an investment agreement with the UAE involved considerable hype.  The government is restructuring subsidies for cooking fuel to save budget resources.   Outlook: One by one, conditions affecting Indonesia’s outlook are improving.  The trade war détente, currency strength and declining interest rates bode well for the economy, while political uncertainties are diminishing.  Investor confidence may now hinge on whether imminent union protests derail labor reform – and whether Widodo indulges mafia‑style interests who would jeopardize the ‘democracy premium’ (p. 12).Politics: Golkar Chair Airlangga Hartarto unveiled a party leadership roster that accommodates disparate interests – and dilutes the influence of Bambang Soesatyo.  Seen as a nascent threat to the democratic status quo two months ago, the People’s Consultative Assembly (MPR) speaker is substantially weaker now (Page 2).  In upcoming regional‑head contests, bids by four relatives of President Joko Widodo warrant concern about dynastic ambitions that may conflict with democratic principles.  So far, however, Widodo’s offspring remain less ambitious than those of his predecessor (p. 5).  The party‑chair election in the National Mandate Party (Pan) is due on 12 February, but the incumbent contender Zulkifli Hasan faces questioning by the Anti‑Corruption Commission (KPK); the case dates from his Yudhoyono‑era tenure as forestry minister (p. 6). Policy News: The government intends to trim spending on cooking‑fuel subsidies by targeting the spending.  Households not qualified as beneficiaries may need to spend an additional Rp30,000 per month for liquid petroleum gas (LPG) canisters (p. 8). Infrastructure: The president intimated that the UAE will fund a US$28 billion Indonesia Sovereign Wealth Fund (SWF).  The reality may not be so grand (p. 9).Economics: The US‑China ‘Phase One deal’ at least offers a respite from tariff­‑related uncertainties.  The potential boost for commodity prices may be driving up the rupiah at present.  Ample scope now exists for further interest rate cuts by Bank Indonesia (BI) in 2020. Nonetheless, growth requires investment in labor‑intensive manufacturing, which in turn requires reforms (p. 10). 

Outlook Factors Turning Positive, Save Governance / UAE Fund Hyped / Step Towards Fuel Reform